Following a turbulent period in global markets, stocks managed to recuperate some of the losses from the previous day, with US futures showing modest gains as investors scoured for opportunities amidst the aftermath of the widespread market sell-off. Despite the dramatic fluctuations, signs of stability began to emerge, allaying fears of an imminent US recession. Notably, historical data from Goldman Sachs Group Inc. indicates that purchasing the S&P 500 after a 5% decline has typically been a profitable move over the past four decades, offering a glimmer of reassurance to investors.
Market activities remained choppy in various sectors, with the yen initially weakening by 1.5% before bouncing back, European stocks fluctuating from early gains, and Treasuries experiencing a retreat, leading to the 10-year yield poised for its first rise in nearly two weeks. Concurrently, the dollar exhibited strength amidst the market fluctuations.
Mohit Kumar, Chief Economist for Europe at Jefferies International Ltd., remarked on the gradual return of normalcy in the markets, highlighting the recent volatility as a potential opportunity for investors to consider strategic purchases.
Japan continued to witness heightened volatility, with wild swings prompting a circuit breaker for Nikkei futures. The Topix index notably surged by 9.3% following a 12% plunge on the previous day. JPMorgan Chase & Co. noted that the unwinding of the carry trade is only halfway complete, indicating further potential market shifts.
However, the current respite may be fleeting, contingent upon future signals from the US economy and the Federal Reserve’s actions. The VIX index, Wall Street’s fear gauge, remains at its highest level since 2020 following record spikes, with traders actively seeking portfolio insurance against extreme market downturns, reminiscent of the early stages of the pandemic-induced chaos.
Christopher Dembik, Senior Investment Adviser at Pictet Asset Management, anticipates a challenging August marked by continued market fluctuations. Factors such as the yen carry trade unwinding, central bank interventions, and earnings reports will likely influence stock market recoveries in the coming days.
In the realm of Treasury yields, rates rose across the curve, with the benchmark 10-year yield climbing by six basis points to 3.85%. The dollar strengthened following a robust US ISM services report, mitigating some of the market losses.
Amidst these developments, the outlook on Fed rate cuts remains nuanced. San Francisco Fed President Mary Daly hinted at potential interest rate reductions in the coming quarters, citing softening labor market conditions. The swaps market is currently pricing in a nearly 50-basis-point Fed rate cut for September.
In commodities, oil prices held steady near a seven-month low due to disruptions in Libya’s major field, redirecting attention to the Middle East. Gold stabilized after the previous day’s decline, driven by traders adjusting holdings to cover margin calls. Industrial metals like copper, aluminum, and zinc demonstrated resilience by maintaining stability.
Cryptocurrency markets also saw fluctuations, with Bitcoin briefly surpassing $56,000 after significant losses in major cryptocurrencies on the preceding day.
